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Monthly Archives: October 2008

The Department of Justice issued its Good Housekeeping Seal of Approval this afternoon for the proposed Delta/Northwest merger. Yawn.

I don’t think anyone really thought this okay was in doubt — although obviously because Delta cancelled their Media Day that was originally scheduled for tomorrow, I guess it came just a tad later than had been expected.

On with DelWest. Or would that be Norta?

Speaking of Norta….or DelWest there was a laundry list circulated earlier this week of some of the execs at Delta who are going to stay with the new entity.

And a bit of HR news from out of the two airlines’ current sphere of influence.

Ned Walker, who has headed up the PR and Communications function at Continental for a very long time — has moved to Norta. Or DelWest. Yes, Yes, Ned, I know. It’s going to be Delta. I’m just yankin’ you guys’ chain over there.

If you have ever questioned the power of relationships — when it comes to business — look at this move. If I am not mistaken Ned and Delta CEO Richard Anderson were both at Continental (back there in the dark ages) together.

My thanks to a PlaneBusiness Banter subscriber who sent along a link to a series of videos on YouTube this morning. The videos are of a recent speech that was given by Anne Korin and covered on C-Span. Korin is the co-director of the Institute of Global Security. There are seven videos that cover the speech and questions and answers after the presentation.

Her speech takes a very logical and rational look at the situation we now find ourselves in — in terms of that strategic and fungible commodity — oil.

Excellent presentation, and I would recommend it to all who make a living in the transportation business.

We had a slew of airlines report earnings this week — including Allegiant — which posted a stunning revenue performance for the third quarter.

And — everyone else. Who all reported losses to one degree or another. This group included United Airlines, US Airways, Alaska Air Group, AirTran, and JetBlue.

By now you are all probably cognizant of how the markets opened this morning. There was a huge sell off in the Asian markets overnight – and the futures markets were showing such precipitous declines that the NYSE decided to put in curbs before the market even opened in New York this morning.

However, after another rock and roll day, the Dow Jones Industrials closed down only 215.05 points to 8476.20, after having been down as much as 500 points at the opening bell.

Just another fun Friday on Wall Street.

And frankly, these fun Fridays are not going to go away until the Feds begin to address the housing problem.

What? Aren’t they doing that with all that bailout money you and I are now on the hook for? No.

In fact, theoriginal thinking behind the $700 billion plus bailout idea, along with all the moves the Fed has made to increase the willingness of banks to lend money to one another — was that these moves would buy the markets time. Time to sort out the housing debacle.

The root cause of this mess — a housing market that grew out of control on inflated home prices, low interest rates, and greedy banking institutions has yet, however, to really be addressed.

Oh, and yes, I’m sure you also heard yesterday that the number of foreclosures was up 70% in September, year-over-year.

So, to put all the current mess in perspective — the root cause of all of it is still just ….sitting out there.

As for the airlines, it was another bittersweet day.

Bittersweet because the price of oil continues to drop like a rock. Today the price of crude dropped 3.69 to end the day at 64.15. This is the lowest price in 17 months. Meanwhile, N.Y. Harbor Jet Fuel closed the day at $2.08/gallon, down 10 cents on the day.

On the other hand, the vast majority of airline stocks were stung badly today. The reason? The rest of the economic news is so bad.

One of the few airline stocks to post a nice gain today was US Airways. The stocks was up almost 20% on the day at one point, but it drifted back as the day went on. The stock closed up 12% to 7.97. I think analyst comments concerning the airline’s increased liquidity — which the airline disclosed yesterday when it reported earnings — was the key to this uptick.

It was another 55-plus pager this week for PlaneBusiness Banter, as we talked at length about the earnings reports that were released last week by Delta, Southwest, American and Continental.

There were more than a few tantalizing tidbits from the four earnings conference calls, but the one that made me laugh was when Delta’s CEO Richard Anderson was asked by analyst Dan McKenzie from Credit Suisse about whether or not the airline’s revenue performance on the trans-Atlantic sector (which was up) was a result of the fact that EOS and MaxJet were no longer around.

Richard: “They didn’t matter …really.”

Glen Hauenstein, EVP of Network and Revenue Management then came on the call and added,

“Daniel, I think again you have to look at what sectors have been disproportionately hit. We are the largest carrier to the Middle East. We’re the largest carrier to Africa, and those are all included in our trans-Atlantic numbers. Those economies are still quite robust right now. Where we’re not so big is London Heathrow, where we just entered service last year, and I think what you know is that there are several carriers out there that have made their living off of New York to London, and that’s been disproportionately hit as you saw from BA’s announcement a couple of weeks ago or last week. And we’re somewhat insulated from that because that’s not where we’re big, and I think that’s been one of the secret sauce in our recipe of success in the trans-Atlantic.”

We all know that, well, Richard can have his moments. And this was certainly one of them, as he then responded with the finesse of a surgeon wielding a finely sharpened blade, “MaxJet and EOS were so small, that it was a rounding error in terms of trans-Atlantic capacity.”

Ouch.

So the next time you want to minimize the effect of someone or something — just say that they are so small, they are “nothing but the rounding error in the big picture of life.”

It’s been a very rocky road for the financial markets the last month or so.

But as is always the case — the real story of any story is the human story.

Last week while I was still in Texas, I had an email from a longtime reader who is a First Officer with American Airlines.

The reason for his note? He and his wife had decided that they are going to sell the 1.3 acre lot they purchased years ago — where they were going to build that bigger, better “Captain’s” house — because, as he put it, that just isn’t going to happen now.

His question to me — would I be interested in buying the lot?

Ah, no. I’m not even sure how much it was. All I know is that it was in Southlake. That was enough to tell me that it was too expensive for me.

Another friend of mine who works at Centerport (American headquarters) has started riding the Trinity Express to work. (The railroad runs between Ft. Worth and Dallas.) Another friend in Phoenix has sold his gas guzzling SUV. He now has a Camry. He’s not happy. But his spirits are lifted when he compares his monthly gas bills. As he works at PHX and drives in from Cave Creek, which is in far north Phoenix, that’s a long haul — and he’s seeing some notable savings.

Another person I know who works for Northwest and who is looking at a probable move to Atlanta is thrashing around over the decision. He wants to go. But his wife has a great job in Minneapolis. Then there is the problem of the difference in housing costs — the horrible real estate market in general.

Let’s face it — it’s not the best time to be trying to sell a house. Especially in the cold of a Minnesota winter.

Then there are the folks who are simply leaving the industry. In droves. And for most of them, a higher paying job is not that hard to find.

So my question for you this Friday night is this: What are you doing, or what have you done lately, in response to the current financial situation? Has it affected you? Has it not really made that much difference?

Send your rants, your thoughts, and your comments to me. I’ll get back to you next week on what you’ve had to say.

The numbers for both airlines — on their face — were very weird. Just as we saw yesterday with American and Delta. Weird in that with capacity being pulled out and oil prices through the roof for much of the third quarter, we again saw cost per ASM figures solidly in the double-digit category for both airlines.

But revenues were also up — especially at Southwest.

Continental reported a loss of $236 million or $2.14 a share. Excluding $91 million of previously announced special items, Continental recorded a net loss of $145 million or $1.32 a share.

Southwest’s numbers are a bit more complicated to break down — as a result of the airline’s fuel hedges.

Southwest reported net income excluding special items and SFAS 133 unrealized gains and losses of $69 million. Or $0.09 a share. This was two cents better than analyst consensus.

However, because of the drop in the value of crude oil, the airline had to write down the value of its fuel hedging transactions. (That is the bulk of that “SFAS 133 unrealized gains and losses” accounting mumbo jumbo up there.)

When you factor in those write-downs, the airline lost $120 million for the quarter, or $0.16.

That’s right. All those great fuel hedges the airline has stocked up on aren’t so great when the price of oil begins to plummet.

As for honest-to-gosh cash in the bank? The airline ended the quarter with $1.5 billion. With an incremental $200 million of a revolving credit line still available.

Four fully detailed reports on the earnings results from American, Continental, Southwest, and Delta Air Lines will be included in this week’s PlaneBusiness Banter.

Both American Airlines and Delta Air Lines kicked off the earnings season this quarter by announcing third quarter earnings today.

The results?

Not especially heartening — yet, as analyst Jamie Baker with JP Morgan wrote this morning — third quarter results are going to be somewhat of a major aberration. Or as he said, “3Q jet fuel averaged over $1.00/gallon higher than today’s spot, the industry hadn’t undertaken unprecedented capacity cuts, and demand had yet to reflect the most recent global malaise. As such, we broadly consider 3Q industry results to be irrelevant, offering little to no insight as to the industry’s 2009 profit potential.”

Delta Air Linesreported a loss of $50 million, opposed to a profit of $220 million last year, whileAmerican Airlinesreported a loss of $360 million. This compared to a profit of $175 million last year.

Yes, the airlineDIDlose that much.

Headline numbers are touting the fact the airline posted net income of $45 million, but that number includes a huge one-time gain and other items. That one-time $432 million gain came from the sale ofAmerican Beacon Advisors.